Like many of the foreigners in Freetown, Niall O’Cathasaigh came here to do good.

Aged 28 and with an accountancy background, he spent 12 months running the finances of an Irish aid agency. It was a good year, spent helping Sierra Leone to emerge from the ruins of a decade-long civil war.

The community of aid workers, peacekeepers, unemployed mercenaries and eccentric expatriates was vibrant and the bars that dot the sandy beachfront at Lumley were filled with beer, grilled fish and music.

He loved the war-battered tropical paradise, but Mr O’Cathasaigh was not impressed with his first taste of the development industry. “I quickly saw the limitations of the way development is done. It creates all the wrong incentives for the beneficiaries and for the donors,” he says.

Three years later and Mr O’Cathasaigh is still in Freetown, but as a private equity investor with £3 million raised from hedge funds and private investors in Britain. With his business partner Tom Cairnes, 29, he has set up ManoCap to make money from helping Sierra Leone to develop.

“We’re not on a development crusade, this is our careers,” Mr O’Cathasaigh says bluntly.

He will invest about £250,000 in different businesses run by entrepreneurial Sierra Leoneans, aiming for a 30 per cent return for his backers.

Sierra Leone’s brutal civil war ended in 2002, leaving a shattered economy and devastated population. Five years of peace have followed, during which hundreds of millions of pounds of aid money has poured into the country, including £40 million annually from Britain.

Yet Sierra Leone has stubbornly refused to show signs of improvement; its six million people are the world’s second-poorest (only the people of Niger are worse off, according to figures from the United Nations human development index).

“The private sector is the only way that Sierra Leone can work its way out of poverty,” Mr O’Cathasaigh argues - and he is not alone in believing this. In a speech on ending poverty delivered at the UN last month, Gordon Brown said: “Not only does business have the technology, the skills, the expertise for wealth and job creation . . . it is also in your best business interest to help poor countries develop.”

The flaw is in the way in which the aid system works. Aid consultants fly into a country carrying a pile of briefing papers written by other consultants. They stay for up to 12 months, are paid and then leave. “They aren’t accountable for what they do,” Mr O’Cathasaigh says.

According to Jeffrey Sachs, the economist, the system is also wasteful. Professor Sachs estimates that out of every dollar given to Africa in aid, 16 cents goes to foreign consultants rather than to the intended, poverty-stricken recipients.

With his friend and co-founder, Mr O’Cathasaigh has persuaded some business heavyweights to back their plans: ManoCap (named after West Africa’s Mano River) is chaired by Lord Stevenson, the HBOS chairman.

Unlike many of its African neighbours, Sierra Leone is only beginning to attract attention from China. It lacks the vast stores of oil and iron ore that China craves. Instead it has diamonds, gold, forests and fish - and perhaps, in the future, tourism. Before the war, British and German visitors flocked to Sierra Leone’s unspoilt sandy beaches, where palm trees nod towards clear, warm waters, and freshly grilled lobster was delivered with a smile and a low price tag. It provided the setting for the iconic 1980s advert for the Bounty chocolate bar.

ManoCap will not invest in mining, which is dominated by Lebanese-funded artisanal miners who sift stones from muddy pits in the east of the country and by South African and Israeli companies. But Mr O’Cathasaigh sees “huge opportunities” in the fisheries industry, agriculture, financial services, manufacturing and tourism. The fund’s first investment in a local food and beverage manufacturer should be concluded in the next six weeks.

Hindering investment is the fact that Sierra Leone, despite its small size - it is half as big as England - and relatively limited resources, is as corrupt as Nigeria, according to rankings from the Transparency International Index. “Corruption is an enormous challenge; it makes very attractive sectors uneconomical and in small ways you are asked for stuff every day,” Mr O’Cathasaigh admits. The legal framework is also very weak.

Despite the challenges of working in a postconflict country, Mr O’Cathasaigh is not leaving. He and Mr Cairnes will stay in Freetown throughout their fund’s seven-year life and hope to raise a second fund to target larger projects and regional investments.

Yet there are downsides. “The fact that most things don’t work is frustrating,” Mr O’Cathasaigh says. “And if you ask Tom he’ll tell you it’s hard to meet the girl of your dreams.”

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